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Friday, January 17, 2014

Remnants of Prohibition Still Sting Kentucky Grocers.

The United States Court of Appeals
for the Sixth Circuit on Wednesday upheld a post-prohibition-era statute that
prohibits grocers and gas stations from selling liquor. In Maxwell’s
Pic-Pac, Inc. v. Dehner, Nos. 12-6056/6057/6182, (6th Cir. Jan. 15, 2014)
(available at http://www.ca6.uscourts.gov/opinions.pdf/14a0015p-06.pdf),
the court reversed the local federal district court’s decision which had
invalidated the statute.

States might be expected to protect
their laws from challenges. In this
case, however, it appears as if the real source of the effort to save the regulation
was a direct competitor of grocers that stood to lose market share if grocers
were allowed to sell liquor and wine – Liquor Outlet d/b/a The Party
Source. The named defendant, Tony
Dehner, is the Commissioner of the Kentucky Department of Alcoholic Beverage Control,
and he represented the interests of the Commonwealth. Just as ministers and bootleggers enjoyed a
conspiracy of convenience in Kentucky in the 1930’s (90 of Kentucky’s 120
counties outlawed the sale and consumption of alcohol under local option laws),
Liquor Outlet allied with ABC to prevent grocers from selling liquor.

In reading the court’s file, it
became clear that the history of pre-Prohibition corruption and depravity,
lawlessness during Prohibition, and relative peace under regulation after
Repeal all played a significant role in the parties’ arguments and in the court’s
decision. Many of us are aware that
state liquor control laws vary widely, but we’re often unaware that our
respective state’s liquor control laws arose out of the remnants of Prohibition.

In the 1800’s, in Kentucky and
elsewhere, “anybody had the right to sell liquors anywhere, to anybody, and at
any time.” Bd. of Trs. of Town of New Castle v. Scott, 101 S.W. 944 (Ky. 1907). This lack of regulation helped fuel the
temperance movement and led to a perception of liquor as a societal evil, so by
1891 Kentucky’s Constitution allowed its counties to regulate (or even ban) liquor
sales.

Liquor Outlet hired an expert witness
to testify that before Prohibition, liquor had led to political corruption,
prostitution, gambling, crime, poverty and family destruction. Prohibition created its own problems, though,
which were often worse. The district
court noted that Prohibition left Kentucky “infested with bootleggers …
corruption and crime, no revenue, no control, disrespect for law and general
demoralization.” It was an unmitigated disaster.

Along with the repeal of
Prohibition, the Twenty-First Amendment allowed states to regulate the sale of
alcoholic beverages. John D.
Rockefeller, Jr. financed a major study used by the states in developing their
respective regulations. Initially,
Kentucky’s regulatory framework did not restrict the types of premises that
could sell package liquor. But in 1938,
Kentucky enacted a new statute that, in essence, still exists today. Kentucky decided on a regulatory structure
that required licensure (and limited the number of licenses), and it prohibited licenses for “any
premises used as or in connection with the operation of any business in which a
substantial part of the commercial transaction consists of selling at retail
staple groceries or gasoline or lubricating oil.” So, grocers and gas stations have been prohibited
from selling wine and liquor for over 75 years.

A small grocer, Maxwell’s Pic-Pac,
decided that Kentucky’s regulatory structure discriminated against grocers
without any reasonable or justifiable basis.
Under Kentucky’s regulatory framework, for example, a grocery-selling
drugstore (like CVS or Walgreens) can sell liquor, but a pharmaceutical-selling
grocery store cannot. Similarly, a
big-box “party store” can sell grocery items along with liquor, but a grocery
store still cannot sell liquor. The
district court agreed and in August 2012 it ruled in favor of Pic-Pac.

Predictably, Kentucky and Liquor
Outlet appealed. The Sixth Circuit
concluded that it is reasonable for Kentucky to choose to prohibit the sale of
liquor in certain places, such as places where “the community must come
together.” Sounding like the
temperance-movement activists, Liquor Outlet argued that grocery stores and gas
stations posed a greater risk of “exposing” citizens to alcohol, and that more
minors work at grocery stores, so they too would be “exposed” to alcohol.

Liquor Outlet (and its expert) also
argued that Kentucky must be allowed to use regulations to steer society to
lower-alcohol beverages and to reduce exposure of alcohol to impressionable or abstinent
citizens, and that limiting the types of places that sell alcohol plausibly
satisfies that public policy. Still,
overly-broad alcohol control laws have been struck down previously in Kentucky
and in other states. For example, in Commonwealth of Ky. ABC Bd. v. Burke,
481 S.W.2d 52 (Ky. 1972), the court invalidated a provision of the Alcohol
Beverage Control Act that prohibited women from being bartenders and from
drinking at a bar. The Sixth Circuit did
not discuss Burke, and rejected
Pic-Pac’s challenge.

This regulation is partly just academic
since many national chain grocers in Kentucky have separate adjacent liquor
stores. Of course, this really results
in the law only being applicable to small or independent grocers like Pic-Pac. In those stores, the temperance movement
still has a foothold.

Yes, that was one of the arguments made by Party Source and the Kentucky ABC. Pic Pac's response was twofold: (1) it's cost prohibitive for a small grocery store and (2) it's still discriminatory, especially when CVS & Walgreens don't have to open a separate store. Do you agree?

I agree 100% they shouldn't have to set up a store outside. I think the grocery stores should be allowed to sell liquor the argument about the minors being "exposed" is funny because they are already selling beer so the exposure is already there.